James Rainbird is managing director of Pink Pig Loans
One thing you can’t deny about the recent Budget is there were a lot of big numbers being bandied about by the Chancellor, Rishi Sunak.
In fact, as one journalist put it, it was an ‘avalanche‘ of numbers and was almost like a return to the days of Gordon Brown as Chancellor, who also had a predilection for talking big.
Narrow focus on second-charge mortgages
Of course, all Budgets tend to have something of the smoke and mirror about them, with Chancellors burying bad news up front, and always ending with the proverbial rabbit from a hat.
That being the case, what can we housing/mortgage market stakehoders take from this Budget which, it has to be said, was not exactly brimming with measures related to our industry?
Well, first up, let’s deal with the obvious in terms of what Sunak described as a £24bn housing settlement, comprised of £11.5bn to build 180,000 new affordable homes, £1.8bn to build on brownfield sites, and a reiteration of the government’s commitment to build one million new homes.
However, this all had the ring of familiarity to it. I’m not sure if any of this was ‘new money‘ or if it was simply reaffirming what the government has always said it will do.
For example, the government’s commitment to building new homes has been there for some time – it has repeatedly suggested it will aim to build 300,000 new homes by the middle of this decade.
It probably doesn’t need me to point out that in 2020 the number of new homes registered was just over 123,000, and while that was clearly impacted by COVID and the pandemic, we appear to be a long way from 300,000. At this rate it will take them close to a decade to get near their one million new home ambition, but we shall see.
Of perhaps more concern to our clients is the current rise in the standard of living and what this might mean in terms of their ability to meet mortgage affordability measures going forward.
This information was detailed up front, so you might guess it’s not the greatest of news. In fact, you’d need to have your head in sand over the last few months not to know about the increase in the cost of living, particularly in terms of food/petrol/utility bills, and much more.
This has led to inflation rising significantly and the Chancellor helpfully pointed out that inflation is now likely to stay above 4% for the entire duration of 2022. He also pointedly said that he has already written to the Bank of England reinforcing its remit to keep inflation low.
What does that mean? Well, in all likelihood we’re going to have an increase in interest rates sooner rather than later. The money markets have already baked in a rise before Christmas, and if inflation is going to stay at the levels suggested, I think we can all anticipate BBR rising again, perhaps multiple times, during 2022.
The cost of mortgages has therefore probably bottomed out in recent weeks. Already, a number of first-charge lenders have made their moves, and even though the market remains historically competitive, the trend appears to be upwards.
Coupled with cost of living rises, this might well make it more difficult for borrowers to remortgage away from their existing lender, particularly if they are want to increase their debt for any number of reasons.
With that in mind, it looks a fairly solid bet that the second-charge mortgage market is going to grow in importance, particularly over the next 12 months.
One thing going in the favour of existing homeowners has been house price rises, and with it looking unlikely that housing supply is going to meet demand anytime soon, housing asset values are likely to keep moving upwards.
Tapping into those equity levels via a second-charge makes even more sense if the borrower has to pay ERCs to get out of their first-charge deal, and if rates are on the move, they might not be able to find a better rate to move onto anyway.
It therefore seems likely that many more existing homeowners will find a second-charge becoming a more suitable option for their lending needs.
It is very difficult to predict how the economy might move in 2022, but for advisers it is certainly going to make sense to tap into the seconds option – it looks likely you’ll be seeing more and more clients for whom this product could be the right solution.